Fed Tightening May Not Require Many Rate Hikes

The central bank could stop reinvesting bond income or sell some of its massive holdings to achieve the same effect.

The market may soon lose an important tool in forecasting economic cycles and arguably the best determinant of where bond investors should place their interest-rate bets. I refer to the yield curve, or the spread between the yield on short-maturity bills and notes and those on longer-maturity bonds.

No, the yield curve isn’t retiring. But its behavior is likely to change as the Federal Reserve tightens and uses its balance sheet more often in conducting monetary policy. That shift could make betting on longer...